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Need to run a QFA Life Assurance sample question by you...

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  • 19-10-2011 6:24pm
    #1
    ________
    Registered Users Posts: 33 ✭


    This is wrecking my head.
    Which of the following approaches might a life company use, to guard against the possibility of a shortfall of cover arising on a low cost whole of life policy?

    (i) Discounting the assumed bonus rate on the whole of life element of the policy.

    (ii) Running a parallel level term assurance policy for a percentage of the sum assured.

    (iii) Guaranteeing payment of the target amount or the value of the policy, whichever is lower.
    Apparently, i and iii are correct. How is iii correct though? What kind of guarantee is that? They way I'm reading it is that if the value of my policy dropped to 93,000 when it was initially projected to be 100,000, that the company would pay out the lower of these two amounts. ie. 93,000.

    Shouldn't it be "whichever is higher" or am I totally wrong?


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    #2
    leduigs
    Registered Users Posts: 91 ✭✭leduigs


    No the answer is correct, the life company is guarding its own interests against the potential shortfall therefore the customer will only get the lower amount.

    Hope this explains it okay mate.


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